08/24/2012 archive

The Age of Niallism: Ferguson and the Post-Fact World

By Matthew O’Brien, The Atlantic

Aug 24 2012, 10:32 AM ET

I don’t want to go too far down this Ferguson rabbit hole — we get it, he lied — but I do want to answer his response to my fact-check. Ferguson’s reading of my criticism was as lacking as his fidelity to facts. I tried to make clear that I was cataloging two categories of errors in his piece. There were untruths misleadingly framed as truths and truths misleadingly framed so as to be untruths. Or, as I put it, “a fantasy world of incorrect and tendentious facts.”

Let’s take a quick detour into the meta. Ferguson objects that I don’t identify “a single error” and that I’m just offering my own opinions. The former is not true — his description of Obamacare and its budgetary impact are demonstrably false — but the latter is a legitimate point of debate. Ferguson prefers a very narrow definition of fact-checking; I do not think that is sufficient. Facts twisted out of context can be just as deceptive as outright falsehoods — sometimes even more so, because you can cloak them in claims of truthfulness.

…

Ferguson gets some facts wrong. Ferguson gets some facts right, but frames them incompletely. Why the outrage? Because he’s treating facts as low-grade and cheap materials that are meant to be bent, spliced and morphed for the purpose of building a sensational polemic. Even more outrageous is that his bosses didn’t mind enough to force him to make an honest argument, or even profess embarrassment when its dishonesty came to light.

Ezra Klein Deems Joe Stiglitz, Paul Krugman, and Elizabeth Warren (Plus Other Serious People) Not Credible

Yves Smith, Naked Capitalism

Wednesday, August 22, 2012

Ezra Klein demonstrated how far he’s has to descend into the Humpty Dumpty world of words meaning just what he chooses them to mean in order to defend failed Administration policies.

Washington DC’s Baghdad Bob waded into the fray over a an unconvincing apology in the New York Times for Obama’s bank-friendly response to the mortgage crisis. … While it’s now acceptable for the messaging apparatus to describe the policies as inadequate, the party line is lame: there was no support for bold measures and those big bad servicers were an insurmountable obstacle.

…

Huh? Sorry, plenty of people vastly more credible than Klein had concrete recommendations at the time that would have been considerably better than Obama-Geithner program of coddling the banks.

For instance, Princeton economist Alan Blinder recommended a Home Owners Loan Corporation style mass refinance. She Who Must Not Be Named came out for it in her campaign. Joe Stiglitz, Paul Krugman, Nouriel Roubini, Mark Zandi, Jeff Merkley, Brad Miller, Ellen Seidman and others backed it. Krugman and Neil Barofsky have also argued the Administration could at a minimum have used $50 billion in unused TARP funds for mortgage mods. Adam Levitin (arguably the top US expert on mortgage securitizations) recently proposed(.pdf) a “bad bank” as a way to implement pooling and standardized restructuring of underwater mortgages. Top mortgage analyst Laurie Goodman has also long advocated principal modification, and she has established that they have much lower redefaults than other types of mortgage modifications.

Or how about using bankruptcy to write down mortgages to the current value of the house, something now done in bankruptcy for every type of collateralized loan except primary residences? Advocates of that approach included the Congressional Oversight Panel under Elizabeth Warren’s chairmanship, and more recently, the IMF. A bill passed in the House but was nixed in the Senate.

How about principal writedowns with shared appreciation mortgages, advocated by Andrew Caplan and Luigi Zingales? Even Greg Mankiw pointed to an approach suggested by John Geanakoplos and Susan Koniak a way to work around those pesky servicers. Dean Baker has pushed for an own to rent program.

This is far from a complete list. There were plenty of credible people who had concrete, specific proposals which would have done better than what the Administration implemented. When the benchmark is HAMP, which managed to make hundreds of thousands of borrowers worse off, or a mortgage settlement that institutionalizes servicer fraud and has already harmed mortgage investors helping pay for the settlement, it’s a low bar to beat.

So if you were honest about this issue, no matter where you draw the line, there were “credible” people who had proposals that were obviously better. And the evidence in part comes in the New York Times article that Klein mentions. It concedes that bankruptcy cramdowns might indeed have been a better idea than the Administration’s limp-wristed response. And don’t tell me Obama couldn’t have gotten this through. He was willing to whip personally to get Bernanke’s contested reappointment approved; he didn’t apply anywhere near that level of effort to this initiative.

…

(T)he mortgage/housing issue is charged because, as Barofsky stressed, the Administration deliberately chose to use homeowners to foam the runway for banks.

…

That of course means that it is a priority for Obama to obscure the fact that he chose the banks over ordinary citizens on housing, the single biggest source of wealth for most families.

…

So to defend this Administration’s sorry record, loyalists like Klein have gone from practicing sophistry to agnotology. In a perverse way, that’s encouraging, because it’s a sign that it’s becoming more difficult for the pundit class to deny the facts on the ground.

GOP Intellectual Decline, Monetary Edition

Paul Krugman, The New York Times

August 24, 2012, 3:42 pm

(T)he GOP platform will reportedly include a call for steps toward a return to the gold standard.

The really strange thing about all this is that this turn toward hard-money mysticism is taking place even as events have demonstrated that the advantages of not being on a gold standard, of having a fiat currency that can be printed freely in emergencies, are even greater than standard analysis had supposed.

Mark Thoma links to an old piece of mine that I think does a pretty good job of laying out that standard case; but we now know that there’s a major additional concern, the ability of the central bank to act as lender of last resort to the government as well as private banks. Consider, as Paul De Grauwe has in one of the most important analyses (pdf) to come out of the crisis, the contrast between Spain and the UK.

…

(B)orrowing costs have soared in Spain, while falling in Britain.

…

So the GOP has decided that we must reject the evils of fiat money and go for the gold standard at precisely the moment when events have demonstrated that fiat money is a really useful thing and the loss of flexibility that comes from ending fiat currencies can be utterly disastrous. What’s going on?

…

In this sense fiat money is like, oh, Social Security. The problem it creates for conservatives is not that it doesn’t work, but that it does – which is a challenge to their philosophy. And so it must die.

What these pieces all have in common is the demonstrated failure of trickle down supply side Chicago School Voodoo Economics.

I found this informative discussion at naked capitalism. It’s in two parts with links that are educational, especially for those of us who have a minimal understanding of economics. The first article by Michael Hoexter of New Economic Perspectives is prefaced by Yves Smith:

The discussion of tribal allegiances in economics in this post helps illustrate why it is so difficult to push back against failed ideas when they are dear to the mainstream. It is also a useful ethnographic guide.

Is an Anti-Austerity Alliance of Left Neo-Classicals and Post-Keynesians Possible? Is it Desirable? (Part 1)

I drafted the “Mixed Economy Manifesto” as one attempt to create a common basis for anti-austerity economists and non-economists to argue against, in the clearest terms possible, the waves of government spending cutbacks that are advocated by misguided elites, by the right-wing and by right-leaning neoclassical economists. The 87 “theses” listed at the end of the Manifesto enumerated empirically and logically sound propositions about the economy as it now exists with its mixture of government and private institutions that can under many circumstances productively interact with each other. (I may attempt or others may attempt to expand the arbitrarily numbered 87 to 95 theses which would then be suitable for nailing on doors.) The Mixed Economy Manifesto also contained many statements that would appeal to Left Neo-classicals or New Keynesian economists, while maintaining a basis in what I perceive to be the more realistic ideas about the economy that have been put forward by post-Keynesians, MMTers, and the institutionalist tradition, including Thorsten Veblen and John Kenneth Galbraith.

As it stands, the world appears to be heading into a policy-induced exacerbation of the ongoing Second Great Depression that may pale in comparison to the policy mistakes of 1937 in the US, when President Roosevelt listened too much to the hard-money ideologues of his day and cut spending only to weaken the ongoing recovery from the Depression of the 1930’s. It would seem to make sense to create an alliance of as many intellectual and political tendencies as possible against a repeat of these mistakes. One major problem is that the public is largely unaware that there is a choice, so has not yet joined the struggle, except in countries like Greece and Spain where austerity is now in full force.

Another major problem in creating such an alliance is that there are significant intellectual and institutional divisions among those economists who endorse counter-cyclical spending by government and/or mobilizing the resources of government to help the unemployed and the marginally employed. These economists disagree with each other about fundamental issues and, if listened to by the public closely and in sequence, can produce either confusing or not particularly decisive advice for anti-austerity activists. This in turn makes it difficult to create a mass political movement that opposes austerity measures before they take full effect or, furthermore, after some future political victory for anti-austerity forces, for policymakers to institute policies based on a consistent new economic thinking. The most consistent critics of austerity and the economic foundations of austerity thinking have been Post-Keynesians, a diverse grouping of schools that claim to be both heirs and critics of Keynes, including the growing Modern Monetary Theory school (MMT). Post-Keynesians are generally excluded from the centers of power within the economics profession, though are not as marginalized as biophysical, steady-state/ecological, and Marxist economists. “New Keynesianism” is a much more mainstream school that integrates certain aspects of Keynes into the dominant neoclassical economics taught in college Econ 101 courses. Often the publicly-identifiable Left of mainstream economics, for instance Paul Krugman and Joe Stiglitz, can be identified as New Keynesian and therefore fundamentally neoclassical.

Post-Keynesians and MMTers often direct their sharpest critiques at New Keynesian or Left Neo-classical economists, though there are also efforts at comity from the side of Post-Keynesians. On the other side, the more orthodox and “establishment” New Keynesians/Left Neoclassicals for the most part do not offer Post-Keynesians the professional respect of acknowledgement and/or serious intellectual critique of Post-Keynesian/MMT ideas. There are signs that this “Chinese wall” is breaking down, as the global Depression drags on, but often in ways that indicate that isolated terms from or fragments of Post-Keynesianism and MMT may be taken and reconfigured to fit the orthodox model and academic “lifestyles” of Left Neo-classical economists. This was the intellectual “move” that Paul Samuelson executed in the late 1940’s, validating those parts of Keynes that would fit with neoclassical orthodoxy, while leaving out the aspects of Keynes’s work that suggested that neoclassical orthodoxy should be fundamentally questioned or overturned.

Is an Anti-Austerity Alliance of Left Neo-classicals and Post-Keynesians Possible? Is it Desirable? (Part 2)

United as they are in their critique of neoclassical economics, it would be a mistake to portray post-Keynesians as united among themselves, a further complication for the emergence of any unified message from anti-austerity economists. Post-Keynesian Thomas Palley has recently likened MMTers proposal that government institute a WPA-style “job guarantee” program to the policies of the Tory Cameron government that unemployment benefit recipients work for free. Palley’s concern is that the MMT job guarantee will undermine public sector unions but MMTers dispute that Cameron’s policy is a job guarantee program. Palley’s objections to the job guarantee and MMT were also the subject of a caustic review by Randy Wray, a prominent MMT economist. Steve Keen, who calls himself as “Monetary Circuit Theorist”, has shown an interest in finding points of commonality with MMTers while maintaining at other times a distance from it. MMT, perhaps because it has a popular following and momentum, seems to be a particular target of criticism and self-differentiation by non-MMT post-Keynesians. Perhaps this criticism is meant to be constructive but at times the disputes are often conducted in relatively heated exchanges in blogs and on Twitter, where ultimately outsiders to these disputes will remain confused and will perhaps throw up their hands.

The question then remains whether these two groups of economists can work together and fight against austerity as a loosely coordinated group, even if they themselves are not even in agreement among themselves. From the perspective of those outside of the economics profession, the prime consumers of the output of economists, a cogent and unified message against austerity would be a great help. Political movements and political actors require a unified message to achieve power. As well, to be ultimately a success if they ever achieve power, they need to have a realistic policy alternative to offer. As it stands, the voices of the Left Neoclassicals are heard much more widely, yet their vision ultimately does not offer political leaders and political activists on the ground a portable vision and argument to reshape overall policy and popular views. Post-Keynesians, in particular MMT, are working on a more realistic vision of how the economy and government work and work together that potentially is comprehensible by a wider group of people. Yet this vision, though now gaining a wider audience, has not yet achieved critical mass in the public discussion. [..]

If some prominent economists from orthodox and heterodox tendencies could agree that it would be possible to come up with a list of three to five anti-austerity principles which do not offend any “side” to this debate, this might be a way forward. These principles could then become “talking points” for economists to campaign in the media and in meetings with the powerful for an anti-austerity solution. Creating an anti-austerity “echo-chamber” would be a step in the right direction. As an independent commentator on economics not currently affiliated with an academic institution, I do not have the status to get the ball rolling on this process.

If economists, like cats, cannot be “herded” into producing a workable statement of anti-austerity principles, then the diffuse strategy of producing articles, blog posts, testimony, and media appearances becomes second best but offers a glimmer of hope that the perversity of austerity will be communicated to the broader public.

This effort, however, should not compromise or derail the long-term epistemological project to build a better social science and a better economics that can help prevent concurrent disasters like the present ones. Temporary political victories can only buy time but ultimately cannot solve the problems of governing and managing mixed economies, the type of economy in which we live and that has sorely challenged conventional wisdom.

“Punting the Pundits” is an Open Thread. It is a selection of editorials and opinions from around the news medium and the internet blogs. The intent is to provide a forum for your reactions and opinions, not just to the opinions presented, but to what ever you find important.

Thanks to ek hornbeck, click on the link and you can access all the past “Punting the Pundits”.

Follow us on Twitter @StarsHollowGzt

Paul Krugman: Galt, Gold and God

So far, most of the discussion of Paul Ryan, the presumptive Republican nominee for vice president, has focused on his budget proposals. But Mr. Ryan is a man of many ideas, which would ordinarily be a good thing.

In his case, however, most of those ideas appear to come from works of fiction, specifically Ayn Rand’s novel “Atlas Shrugged.”

For those who somehow missed it when growing up, “Atlas Shrugged” is a fantasy in which the world’s productive people – the “job creators,” if you like – withdraw their services from an ungrateful society. The novel’s centerpiece is a 64-page speech by John Galt, the angry elite’s ringleader; even Friedrich Hayek admitted that he never made it through that part. Yet the book is a perennial favorite among adolescent boys. Most boys eventually outgrow it. Some, however, remain devotees for life.

Dean Baker: Land of the fee: The $1.2 trillion health care tax

An inefficient health care system is costing $1.2 trillion, but many economists want to fix the budget by slashing it.

Economists tend not to be very good at economics, which is one of the main reasons that the world is facing such a prolonged downturn. Few economists were able to recognise the enormous imbalances created by housing bubbles in the United States and elsewhere, or to understand that the collapse of these bubbles would lead to a prolonged period of stagnation in the absence of a vigorous response by governments. [..]

You would think that economists would be upset over a $1.2 trillion annual tax due to the inefficiency of our health care system. This is at least an order of magnitude larger than most issues that economists spend their time worrying over. Yet there are few economists who make this obvious point when debates over the budget come up. Instead, they typically chime in with the choir saying that we need to cut the budget, not fix health care.

The cynical among us might point out that fixing the budget mostly means beating up on older people getting Social Security and Medicare benefits. Fixing health care means going after powerful lobbies like the insurers, the drug industry, and doctors. But whatever their motive, the facts are clear. The vast majority of economists in the United States are not especially concerned about a $1.2 trillion annual health care tax; they have much less important matters to take up their time.

(h/t Naked Capitalism)

Spain Deficit Goals at Risk as Cuts Consensus Fades: Euro Credit

By Angeline Benoit, Bloomberg News

Aug 22, 2012 3:23 AM ET

The Socialist president of the northern Basque Country Patxi Lopez today told Cadena Ser radio he is moving local elections initially scheduled for March 2013 forward to Oct. 21 in order for Basques to choose how to deal with the crisis. “There is a lot of uncertainty about the future and our economic model is what counts,” he said.

The Andalusia region said Aug. 1 it will take the state to court on 2012 debt ceilings. It should be allowed to borrow more as its burden is 10.6 percent of its GDP compared with a 13.5 percent regional average, it said.

The 17 semi-autonomous governments won’t keep their economic promises this year, according to a report released this week by the Fedea research institute in Madrid. It forecast overspending for the regions may reach 4 percent of GDP, compared with 3.3 percent last year and a target of 1.5 percent.

The government has ruled out cutting pensions next year and extended a temporary benefit for long-term jobless people to stem growing discontent, Afi’s Herce said. “Rajoy’s strategy is to wait and say little to avoid political damage in the short term.”

…

Support for Rajoy’s PP has slipped 8 percentage points since it won 40.6 percent of votes in a landslide in November. Since then, Rajoy has announced more than 100 billion euros of budget cuts, raising income and value-added tax, scrapping a tax break for home owners and cutting civil servants’ wages, unemployment benefits and health care and education spending against his word.

Italy Looks ‘Perilously Close’ To Getting Shut Out Of The Bond Markets

Mamta Badkar, Business Insider

Aug. 21, 2012, 11:30 PM

Italian GDP contracted for the last 12 months and the country is now looking at a longer and deeper recession than was previously expected.

…

Societe Generale’s James Nixon points out three key points about Italian debt and its economic growth:

1. Italy has extremely high debt-to-GDP and to bring this in control, the government is pushing austerity. This austerity along with a credit crunch are hurting economic growth.  Nixon projects Italian GDP to decline 2.3 percent in 2012, and 1.4 percent in 2013, and expects it to be flat in 2014. The IMF puts Italy’s long-term growth rate at 0.5 percent per annum.
2. Rising unemployment is impacting consumer confidence and has caused a drop in private consumption.
3. Finally, to achieve fiscal consolidation Italy is raising taxes on consumption and property, both sectors that are being hit hard by unemployment and tight conditions in the banking sector. “Italy also faces a significant increase in its service costs which, if not addressed, threatens to wipe out all of the consolidation planned for next year.”

This is your morning Open Thread. Pour your favorite beverage and review the past and comment on the future.

Find the past “On This Day in History” here.

August 24 is the 236th day of the year (237th in leap years) in the Gregorian calendar. There are 129 days remaining until the end of the year.

On this day in 79 A.D., Mount Vesuvius erupted burying the cities of Pompeii and Herculaneum in nearly thirty feet of ash and pumice. The toxic gases killed at least 2200 people who remained in Pompeii after the evacuation.

After centuries of dormancy, Mount Vesuvius erupts in southern Italy, devastating the prosperous Roman cities of Pompeii and Herculaneum and killing thousands. The cities, buried under a thick layer of volcanic material and mud, were never rebuilt and largely forgotten in the course of history. In the 18th century, Pompeii and Herculaneum were rediscovered and excavated, providing an unprecedented archaeological record of the everyday life of an ancient civilization, startlingly preserved in sudden death.

At noon on August 24, 79 A.D., this pleasure and prosperity came to an end when the peak of Mount Vesuvius exploded, propelling a 10-mile mushroom cloud of ash and pumice into the stratosphere. For the next 12 hours, volcanic ash and a hail of pumice stones up to 3 inches in diameter showered Pompeii, forcing the city’s occupants to flee in terror. Some 2,000 people stayed in Pompeii, holed up in cellars or stone structures, hoping to wait out the eruption.

A westerly wind protected Herculaneum from the initial stage of the eruption, but then a giant cloud of hot ash and gas surged down the western flank of Vesuvius, engulfing the city and burning or asphyxiating all who remained. This lethal cloud was followed by a flood of volcanic mud and rock, burying the city.

The people who remained in Pompeii were killed on the morning of August 25 when a cloud of toxic gas poured into the city, suffocating all that remained. A flow of rock and ash followed, collapsing roofs and walls and burying the dead.

Plaster Citizens of Pompeii

Those that did not flee the city of Pompeii in August of 79 AD were doomed. Buried for 1700 years under 30 feet of mud and ash and reduced by the centuries to skeletons, they remained entombed until excavations in the early 1800s.

As excavators continued to uncovered human remains, they noticed that the skeletons were surrounded by voids in the compacted ash. By carefully pouring plaster of Paris into the spaces, the final poses, clothing, and faces of the last residents of Pompeii came to life.

n the only known eye witness account to the eruption, Pliny the Younger reported on his uncle’s ill-fated foray into the thick of the ash from Misenum, on the north end of the bay:

“. . .the buildings were now shaking with violent shocks, and seemed to be swaying to and fro as if they were torn from their foundations. Outside, on the other hand, there was the danger of failing pumice stones, even though these were light and porous; however, after comparing the risks they chose the latter. In my uncle’s case one reason outweighed the other, but for the others it was a choice of fears. As a protection against falling objects they put pillows on their heads tied down with cloths. ”

And then:

“You could hear the shrieks of women, the wailing of infants, and the shouting of men; some were calling their parents, others their children or their wives, trying to recognize them by their voices. People bewailed their own fate or that of their relatives, and there were some who prayed for death in their terror of dying. Many besought the aid of the gods, but still more imagined there were no gods left, and that the universe was plunged into eternal darkness for evermore.”

This is my first diary here. I usually write on the Daily Kos, but wish to expand my horizons a little.

Pakistan has arrested an eleven year old Christian girl, last weekend on charges of blasphemy. It is alleged that the girl burnt pages which contained verses from the Koran.

Furthermore, the girl suffers from Down Syndrome and it is questionable whether or not this was an act of malice or merely an accident.

Even if the act were intentionally, I firmly believe that Blasphemy laws should not exist anywhere in the world because I concur with the message of Noam Chomsky:

If you believe in freedom of speech, you believe in freedom of speech for views you don’t like. Goebbels was in favor of freedom of speech for views he liked. So was Stalin. If you’re in favor of freedom of speech, that means you’re in favor of freedom of speech precisely for views you despise.

Beyond the destruction of objects, Pakistan’s blasphemy laws target not just acts but rather thoughts. It makes thought crime a legitimate offense. For instance, a medical lecturer was targeted by the laws for expressing a mere opinion:

After one class in October he was accused by his students of saying that until the prophet Mohammed received his first message from God at the age of 40 he was not a Muslim and did not shave his armpits or pubic hair, and his parents were not Muslim. A group of 11 students complained to a group called the Organisation of the Finality of the Prophet, a self-appointed guardian of hardline Sunni Islam, which has brought dozens of blasphemy charges against religious minorities. A charge was lodged against the lecturer and he was immediately arrested, although he insisted that his words were misunderstood.

http://www.guardian.co.uk/worl…

Skepticism, intellectual inquiry and the expansion of curiosity are at the heart of a progressive society. Blasphemy laws hamper a mind’s ability to think and to doubt. It chains that mind to archaic religious texts, and cannot reconcile human progress and secular-humanistic principles too swiftly or too easily.

It was Salman Rushdie (himself a target of an anti-blasphemy sentiment extending overseas), who said this about censorship and it equally applies to blasphemy laws (since they are just another form of censorship):

“But the worst, most insidious effect of censorship is that in the end, it can deaden the imagination of the people. Where there is no debate, it is hard to go on remembering, everyday that there is a suppressed side to every argument.” (Salman Rushdie, Imaginary Homelands, p. 39).

The Muslim world needs to return to a time, when free-thought and free-inquiry thrived in its lands. It needs to create the same atmosphere that created people like Abu Bakr al-Razi. In fact, as the Guardian notes:

In examining this chapter of Islamic history, regardless of the validity or otherwise of the views expressed, one cannot help feel amazed at the fact that the Islamic thinkers of the 10th century had the freedom to discuss and publish their “unorthodox” ideas, while the Islamic world now cannot, or will not, deal with any form of intellectual dissent.

http://www.guardian.co.uk/comm…

It probably will have a hard time doing this however, due to external interference in the guise of U.S. foreign policy.

We made a great blunder in our foreign policy as the philosopher Slavoj Zizek says, when we chose to side with Muslim fundamentalists against either secular-leftists or reformist movements. The very same ideas and people that now haunt us, we have either brought to power or sustained financially and militarily time and time again.

It has done wonders for the defense industry and perhaps that’s why such masochistic behavior is repetitive. The need for a perpetual and terrifying enemy is what fueled the Cold War and the arms trade, and racked in millions to disaster capitalism firms, and with the collapse of the Soviet Union, another boogeyman has taken its place. As Naomi Klein’s blog notes about the invasion of Iraq (an extension of our war on terror):

“Disaster Capitalism” firms need wars to generate profits. And by sidestepping the draft, Iraq became a privatized war employing over 185,000 (20,000 more than the military), including truck drivers, PX clerks and mercenary soldiers. Blackwater was near bankruptcy before the war. Through secret no-bid contracts the U.S. pays for training centers which the companies now own. Peace does not generate disaster profits.

http://www.naomiklein.org/shoc…

Here’s another great song in the Techno genre that’s too fast to dance to.  Kind of odd that Depeche Mode is still around and Ultravox isn’t.  It’s like Maddona and Cindy Lauper, I always liked Cindy better.

Sleepwalk

Sleepwalk kind of peters out into Side B Waiting at 3:10, but this is the studio version with the soprano organ part clearly audible.